True, Deckers' top line increased 26%, to $52.7 million. But the company also earned less from these sales. Gross margins for the quarter fell about 420 basis points, to 41.4%, and operating margins slid 395 basis points, to 5.7%.
The company's Teva brand continued to struggle. Sales for the quarter increased only 5.6%, to $24.1 million. The company claims that new orders at higher price points helped, while reorders were weaker than expected.
It's hard to put a positive spin on such weak sales, especially as Wolverine Worldwide
Deckers' other major brand, UGG, did very well, outpacing company expectations with a 65% increase in sales. Preorders for the fall are also higher than expected, boding well for the coming quarter. Sales of its upper-end products appear to be doing well, too.
In less fortunate news, Deckers underpaid certain taxes in foreign jurisdictions. As a result, it faces fines and penalties ranging from $3.3 million to $15.4 million, as well as possible restatements of past financial statements.
Management boosted its guidance, now expecting revenue growth to increase from 25% last year to 35% this year, with earnings-per-share growth rising from 15% to 25% in the same time frame. Still, I can't help thinking that the Teva brand has to grow faster. The first half of the year is supposed to be brand's strongest. If it was weak here, when will its growth pick up?
I have serious reservations when one of a company's major products ekes out a 5% increase in sales during its supposedly strongest season. The second half of the year is traditionally strong for UGGs, but with competition heating up, will that brand also falter? Investors may wish to tread carefully when it comes to Deckers.
Lace up some further Foolishness:
Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. Feel free to email him. He doesn't have any positions in the companies mentioned. The Fool has a disclosure policy.